Is Cord-Cutting Hurting Cable?

Cable services are losing ground to other entertainment formats.

The phenomenon of cord-cutting is a couple of years old now, yet cable and other conventional pay TV options, such as satellite, continue to thrive. Or do they? A handful of studies have looked at the issue of whether customers are dumping pay TV and have come up with a resounding… "It depends."

While it is true that the media has played up the notion that dissatisfied subscribers are turning to other entertainment formats, pay TV is still going strong. For example, a report by Bernstein Research notes that subscriptions have increased by 1.8 million in 2009, 168,000 in 2010, and 224,000 for 2011. These numbers include all types of TV subscribers, though, and things look slightly different when cable is teased out from other formats. A study by ISI Group, for instance, shows that cable lost 3.8% of its customers from the beginning of 2010 to the end of last year. Apparently, these subscribers migrated to satellite and telephone delivery, which increased by 3.6% and 0.2%, respectively.

Cable companies fight backWhile it appears that pay TV is still king of the entertainment delivery system, cable services are beginning to show signs of trouble. But changes to the entire pay TV industry are looming, according to a study by the Pew Research Center. The report references a Credit Suisse survey performed last summer, which showed that a quarter of the pay TV customers surveyed said that they planned to cancel their subscription within the next five years. This may or may not happen, of course, but it is noteworthy that 25% of consumers who responded said that they used services such as Hulu or Netflix(Nasdaq: NFLX) instead of pay TV.

It seems like cable companies are listening -- and offering new products. For instance, when Netflix offered its streaming service to Comcast(Nasdaq: CMCSA) through its Xfinity program just a short time ago, it was rebuffed. Comcast had its own plan, however, and is test-driving a partnership with TiVo Premiere, which would stream content from many sources -- including Netflix. Just as importantly, Comcast has launched its own Streampix service, which lets Xfinity subscribers watch TV shows and films on computers and mobile devices.

After losing more than 64,000 video customers in the third quarter of 2011, Charter Communications(Nasdaq: CHTR) announced last fall that it would begin streaming online content from Hulu, Amazon, and Netflix through its TV Everywhere web portal. Although it's not as convenient as bundling these services with customers' monthly cable bill and delivering entertainment through the set-top box, the move shows that cable companies are cognizant of the threats to their bottom line posed by these services.

The future of cableCable TV isn't going away any time soon, but there are definite threats to its existence. A Nielson study in June showed that it is an aging population (aged 65 and up) that is most attached to its services, with consumers under the age of 34 using the Internet or mobile devices. It seems obvious that this is the future of entertainment delivery, and cable companies will need to address this issue or risk having a new generation of consumers never plug in that cable cord in the first place.

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